India’s real estate on a stronger growth path in 2024

India’s real estate markets are coming off a record 2023

February 06, 2024

Real estate markets were a bellwether for the Indian economy and the overall industry in 2023. The country was not only the fastest-growing major economy globally, but also saw all real estate indicators at record levels as the year came to an end.

In retrospect, 2023 began on the back of global inflationary headwinds that threatened to turn into a full-blown recession. As such, it was remarkable that Indian real estate delivered a strong performance during the year. Here is a recap of how the year ended.

India’s office markets had a record 2023, with leasing activity in the year surging to 63 million sq ft, breaking all previous records with the second half of the year being especially strong. The demand came from Global Capability Centres (GCCs), especially in the manufacturing/engineering, financial services and technology segments, at a time when third-party tech outsourcing had a muted year. Flex space also performed well, registering record leasing of 10.3 million sq ft. In combination, flex space along with GCCs accounted for a ~55% share of the 2023 office leasing numbers.

A strong finish was seen across all cities, with markets like Bengaluru and Delhi NCR leading the way. Chennai had a record year, while cities like Hyderabad, Mumbai and Pune also recorded robust leasing activity levels in 2023. Net absorption levels in Indian office markets were recorded at 42 million sq ft, second only to the previous peak of 2019. These numbers were unimaginable just six months ago and were indicative of a strong expansion-driven, headcount growth.

A few other things stood out as well. Green footprint in India’s Grade A office market crossed 50%, supported by the push towards creating a sustainable built environment and the sector’s stakeholders driving the decarbonisation agenda.

Indians also shopped more in 2023. Retail leasing across malls and high streets was over 7 million sq ft – a decade high, with brands actively courting the aspirational, well-heeled customers with new formats, experiential stores and international merchandise offerings. Brands made a beeline for the tier 2 and 3 cities as well with merchandise sales showing a big spike.

The logistics and industrial sector saw stable performance in 2023, with demand for Grade A compliant warehouses recording vacancy rate of 6% compared to the overall sector vacancy of ~10.6%. While 3PL players led space take-up, the auto & engineering sectors’ share of leasing rose to c.30% in 2023 (~23% in 2022) on the back of supportive manufacturing policies. In addition, well-dispersed consumption trends buoyed logistics demand in Tier 2 & 3 cities, while the need for quick deliveries boosted the need of in-city warehouses.

India also sold more apartments this year than any of the previous years. Apartment sales across the top seven cities hit ~272,000 units, with Bengaluru, Mumbai and Pune being the top three active markets. This was in a year where affordability dipped slightly (read our report: Home Purchase Affordability Index, 2023) as prices moved north (7-11% on average y-o-y) and interest rates remained sticky at moderately high levels. India also bought bigger houses in 2023, with apartments priced above INR 15 million being the fastest-selling category for the first time ever.

The tailwinds in India’s real estate sector originate from India’s economic resilience. These pillars of strength that support the growth across real estate segments include: the highest GDP growth forecast among major economies, its tech ecosystem – with skills, talent pool and cost advantages to become the ‘office to the world’, as well as a proactive and supportive business environment. The world is watching.